8 Steps to Get Out of Debt
You've sealed your commitment with a kiss and a kick-butt party. And now the Visa bill is due -- yikes. If you're like the average American, you carry about eight credit and charge cards in your wallet, owe more than $7,500 and are paying around 14 percent in interest on those balances.
step 1: separate "bad debt" and "okay debt"
Some debt is inescapable. How do you tell the difference? Okay debt has an interest rate that's well under 10 percent -- preferably with some tax advantages to boot. In the best case, the thing you bought with borrowed funds will appreciate in value. (Think mortgage and even that student loan.) Bad debt is everything else -- from your titanium credit card to the 35-percent loan from Angoraland.
step 2: don't pay by their rules
You're smarter than they are -- and by "they," we mean the suits on the receiving end of your hard-earned paycheck. You know that the "minimum amount due" is cleverly calculated to keep you beholden to The Man for your entire adult life. A $4,500 balance on a card with an 11-percent APR will take 44 years to pay off, even if you don' t put another dime on the card. Oh, and the interest you'll pay on that loan? A cool $17 grand. That's why you're going to pay by your rules.
step 3: get intimate with your visa
Gather your bills and clear a space at the kitchen table to line them up. Find the minimum monthly payment for each account, add them up, and behold your overall monthly minimum. Then rank your cards from lowest to highest interest rate. Identify the one major credit card with the lowest annual interest rate and room for a balance transfer. Your other cards are now dead to you -- take them out of commission. Promise that you'll use the one card left intact for emergencies only.
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step 4: play the heavy with your existing lenders
Grab a bill from any account charging you more than 14-percent interest. Dial the toll-free number and ask to have your rate lowered to 11 percent. Tell them that you'd really like to stay with them out of customer loyalty (embellish according to your acting skills -- fake a French accent if you must), but that you have received offers for much-lower-rate cards. Your lender would rather keep you as a customer than shell out (anywhere from $50 to $200) to find your replacement. And you also stand to save a bundle. Studies show (yes, there are actual studies on this technique) that more than half of customers who try to negotiate lower interest rates with credit card companies have some success.
step 5: shop around for a better deal
If you or your honey have a decent credit report card, you may qualify for "teaser rates" -- low, short-term interest rates -- from your credit card's competition. Move as much of your higher interest debt onto those cards as possible, and then put the card under lock and key. If it's going to take you a while to pay off your balances, it's worth finding the lowest rate you can get for the longest period of time. But do this as few times as possible: The less you have to apply for new credit, open the new account, transfer a balance, and close the old account; the more simple your finances (and your credit record) will be.